Author:
Bulut Harun,J. Collins Keith
Abstract
Purpose
– The purpose of this paper is to use simulation analysis to assess farmer choice between crop insurance and supplemental revenue options as proposed during development of the Agricultural Act of 2014.
Design/methodology/approach
– The certainty equivalent of wealth is used to rank farm choices and assess the effects of supplemental revenue options on the crop insurance plan and coverage level chosen by the producer under a range of farm attributes. The risk-reducing effectiveness of the select programs is also examined through their impact on the farm revenue distribution. The dependence structure of yield and prices is modeled by applying copula techniques on historical data.
Findings
– Farm program supplemental revenue programs generally have no effect on crop insurance choices. Crop insurance supplemental revenue programs typically reduce crop insurance coverage at high coverage levels. An individual plan of crop insurance combined with a supplemental revenue insurance plan may substitute for incumbent area crop insurance plans.
Originality/value
– The analysis provides insights into farmers’ possible choices by focussing on alternative crops and farm attributes and extensive scenarios, using current data, crop insurance plans and programs contained in the 2014 Farm Bill and related bills. The results should be of value to policy officials and producers in regards to the design and use of risk management tools.
Subject
Agricultural and Biological Sciences (miscellaneous),Economics, Econometrics and Finance (miscellaneous)
Reference35 articles.
1. Agricultural Act of 2014 (2014), Public Law 113-79, available at: www.gpo.gov/fdsys/pkg/BILLS-113hr2642enr/pdf/BILLS-113hr2642enr.pdf (accessed April 28, 2014).
2. Barnaby, A.
(2010), “Should basic underwriting rules be applied to average crop revenue election and supplemental revenue?”, Journal of Agricultural and Applied Economics, Vol. 42 No. 3, pp. 517-535.
3. Barnett, B.J.
and
Coble, K.H.
(2012), “Understanding regional differences in farm policy preferences”, American Journal of Agricultural Economics, Vol. 94 No. 2, pp. 528-534.
4. Bulut, H.
,
Collins, K.
and
Zacharias, T.
(2012), “Optimal coverage level choice with individual and area insurance plans”, American Journal of Agricultural Economics, Vol. 94 No. 4, pp. 1013-1023.
5. Coble, K.H.
and
Dismukes, R.
(2008), “Distributional and risk reduction effects of commodity revenue program design”, Review of Agricultural Economics, Vol. 30 No. 3, pp. 543-553.
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